How we reduced the costs and paperwork for a group of foreign private investors
The client’s problem
A group of foreign private investors has invested in residential real estate in the city center of Amsterdam. The investment was made through a Dutch limited partnership: a so-called Commanditaire Vennootschap, also known as CV. As this specific CV is considered tax transparent for Dutch tax purposes, both the Dutch real estate and the Dutch income of the real estate are allocated to the private investors. As a result, all foreign investors have to apply for an individual Dutch tax registration number. Moreover, they must file an individual Dutch personal income tax return in order to report their Dutch source income from the Dutch real estate.
A lot of paperwork resulting in high tax compliance costs.
Limited partnership: a brief explanation
A limited partnership exists when a minimum of two partners join forces to conduct a business in which the management rests with the ‘general partner’, who also bears unlimited liability for the debt and obligations. Besides the general partner, a limited partnership exists of any number of ‘limited partners’. The liability of the limited partners, who are sometimes referred to as ‘silent partners’, is limited to the total amount of their investment. Limited partners do not receive dividends, but enjoy direct access to the flow of income and expenses. Limited partners do not have voting power over the day-to-day operations. Those rights are in the hands of the general partner.
The Dutch tax authorities provide for a facility whereby private investors, who invest in Dutch real estate via a German Gmbh & Co KG, can file one combined tax return instead of all individual tax returns. Hence we approached the Dutch tax authorities and asked them if a similar arrangement could be made for our foreign private investors investing via the CV. Finally, the Dutch tax inspector agreed with our proposal, and an agreement between the Dutch tax authorities and the CV was concluded.
The current situation
Due to the agreement with the Dutch tax authorities, the individual investors do not have to apply for a Dutch tax registration number anymore. Moreover, the investors can file one combined tax return rather than separate individual Dutch personal income tax returns. This saves a lot of paperwork and tax compliance costs, while it has become more efficient for the Dutch tax authorities to collect the Dutch tax due.
Note: due to the privacy of our clients, this case study provided by TGS lime tree does not include any names, numbers and other sensitive information of our clients, partners and other parties involved.